If MPC = 0.75, autonomous consumption = 100 crore, then find the level of consumption at income level = 8,000 crore :
Answer & explanation
Correct answer: option 2
The correct answer is: 6,100 crores.
Here's how we can calculate the level of consumption:
Consumption function: In macroeconomics, we often use the consumption function to relate consumption (C) to income (Y).
- A common form of the function is: C = $\overline{C}+c.Y$ (Where $\overline{C}$ is Autonomous expenditure and c is the marginal propensity to consume.)
- Given values: In this case, we are given:
- MPC = 0.75
- Autonomous consumption = 100 crore
- Income level = 8,000 crore
- Calculation: Now, we can plug these values into the consumption function:
C = 100 + 0.75 * 8,000
C = 100 + 6,000
C = 6,100 crores
Therefore, at an income level of 8,000 crore, the level of consumption is expected to be 6,100 crore.